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Public-private contracts improved

Update: December, 29/2012 - 08:49

 


Work goes ahead on the construction of a new urban area northeast of Thanh Hoa Railway Station. Participation by private investors is expected to speed up infrastructure construction.— VNA/VNS Photo Huy Hung
HA NOI (VNS)— The Ministry of Planning and Investment has started work revising the first official legal framework about Public-Private Partnerships (PPP) in infrastructure projects to make this type of contractual arrangement more viable in Viet Nam.

In 2010, Viet Nam's Government launched a PPP pilot operation in the country by approving the very first regulations allowing infrastructure development projects to be managed under PPP contracts, which were said to provide an effective mechanism for mobilising resources from the private sector to support the Government in large-scale developments.

However, problems have continued to hinder these projects since then, according to the head of the ministry's Bidding Management Department Le Van Tang.

The decision to approve PPPs was made at a time when there had been no similar models adopted in Viet Nam before, resulting in early setbacks. Meanwhile, other kinds of investment contracts including Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) and Build-Transfer (BT) became popular due to their easy adaptation to the relatively comprehensive legal framework in Viet Nam, making

investors from both public and private sectors sceptical about the effectiveness of the new PPP in comparison.

Speaking at a conference on PPP implementation yesterday, Tang emphasised that revising the legal framework to help PPPs was an urgent task.

He said familiar concerns remained such as firmly setting the State's contribution to PPP projects, the vague criteria for selecting development projects, the unreliability of private partners and identifying an acceptable division of risk.

Under the current framework the State contribution includes State funds so must be approved by the Prime Minister, and incentives are limited to 30 per cent of the total investment needed for the project.

Potential PPP projects requiring State contributions exceeding 30 per cent investment also require the green light from the Prime Minister.

At present the PPP model has been limited to seven types of development, including developing transport infrastructure, power plants, hospitals and waste treatment plants. Any project not listed as one of the pilot groups must also get the PM's approval.

"Such regulations can add an administrative burden and duty for the Prime Minister and lead to a "give-ask mechanism," said Vu Quynh Le, head of PPP Office Secretary under the Bidding Management Department.

She said that the ministry suggested extending groups of projects eligible to carry under PPP contract.

Another major problem voiced was that under current regulations the public sector covers all the cost for preparing PPP project investment, including the proposal, pre-feasibility study, feasibility study and the investor selection. These private investors only pay initial costs for a feasibility study, she said, adding that it was often difficult in assigning funds for project preparation from State budget.

Scott Jazynka, project director of USAID's Viet Nam Competitiveness Initiative (VNCI), one of several components advising the Government on developing its PPP programme, said that well-structured preparation was key to the success of every project, including PPPs.

"Identifying a potentially good project is the first step in the five major steps to develop a PPP," he said, noting that PPP projects required preparation different from traditional procurement.

The USAID/VNCI, through the PPP Office is currently assisting various authorising state agency in identifying potential PPP projects, he said.

Trinh Huy Trieu from Thanh Hoa Province said that during project implementation, private investors usually became concerned about delays in land clearance and compensation disputes.

If the public sector could deal with these bottlenecks better, these projects would be more attractive to investors, he said.

He warned that because PPP projects aimed to deliver public services and investors would take back their investment through the collection of tolls and tariffs set by and regulated by the State or local authority, they were worried about the possibility of making a loss on their investment and failing to gain any profit. — VNS

Loans approved for development facility

The Asian Development Bank and French Development Agency have approved loans worth US$28 million to establish a Project Development Facility (PDF) to support the development by the Government of competitively-bid, bankable PPP pilot projects.

The facility will enable the Government of Viet Nam to better prepare, start-up, and implement projects, which will improve the effectiveness of projects in Viet Nam.

Eligible recipients will be given financial support to hire independent consultation for the conduction of a pre-feasibility study, feasibility study, along with transaction advisory support in the selection of a private partner and contract negotiation.

It is hoped this will help avoid situations where the private sector hire consultation and propose projects and the public sector have to reluctantly agree because the Government don't have enough money for proper project preparation. — VNS

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